LPG customers don’t belong to distributors: Kerala High Court upholds landmark 2025 transfer policy

Court: Policy valid, within companies’ powers

• The court emphasised that LPG distributors cannot claim permanent rights over customers and that consumer welfare must take precedence over the commercial interests of dealers.
• The high court agreed with the oil companies and rejected the distributors’ challenge.
• The court noted that the policy had been issued by responsible officers of the oil companies and there was no reason to assume that it lacked internal approval.

• The court invoked the principles of “indoor management”, observing that in the absence of evidence to the contrary, it must be presumed that internal procedures were properly followed when the policy was issued.
• It further held that earlier rulings of the Kerala High Court had already established that oil companies have the right to transfer LPG customers between distributors.

Customers belong to oil companies

• The customers are the customers of the oil marketing companies and are not the customers of the distributors.
• The court observed that the contractual relationship of the LPG consumer is with the oil company and not the distributor.

• “The contract of the subscriber is with the Oil Marketing Company and the distributor signs the subscription voucher on behalf of the company,” the court noted.
• The judge added that LPG supply is a public utility service, and therefore consumer interests must take precedence over the profit considerations of distributors.

Legitimate expectation, promissory estoppel rejected

• The petitioners had argued that they had a legitimate expectation that the customer base built by them would remain intact.
• The court rejected this claim, pointing out that distributorship agreements clearly provide for possible transfer of customers.
• The judgment held that even though distributors had been allowed to exceed refill ceilings in the past, this did not amount to a promise that such arrangements would continue indefinitely.

Policy found beneficial compared to earlier guidelines

• The court observed that the 2025 policy actually protects distributors better than earlier guidelines.
• Under the 2018 policy, customer transfers could reduce a distributor’s customer base to 75 per cent of the refill ceiling limit.

• However, the new policy ensures that a distributor’s customer base cannot fall below 100 per cent of the refill ceiling limit, thereby guaranteeing a minimum level of business.
• The court said that if the new policy were struck down, the earlier and less favourable guidelines might become applicable again.

Constitutional principles cited

• The court also relied on Articles 39(b) and 39(c) of the Constitution, which require the state to distribute resources in a manner that serves the common good and prevents concentration of economic power.
• The court observed that LPG distributorships constitute a form of state largesse, and policies governing their allocation must ensure equitable distribution and consumer welfare.

Petitions dismissed

• After considering the legal and constitutional issues involved, the court concluded that the petitioners had failed to demonstrate any illegality or arbitrariness in the policy.
• “The petitioners have not made out any ground or reason to interfere with the policy,” the court held while dismissing the writ petitions.
• The ruling clears the way for oil marketing companies to implement the LPG customer transfer policy in Kerala as part of efforts to restructure distribution networks and improve service delivery.

Petitions filed by LPG distributors

• The case arose from two writ petitions filed before the Kerala High Court.
• The principal petitioner was the All India LPG Distributors Federation (Kerala Circle) along with its members, who are distributors operating LPG agencies across the state.

• They challenged a policy issued jointly by the three major oil marketing companies- Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited which enables the transfer of LPG consumers between distributors to achieve market balance and ensure viability for newly established distributorships.
• The distributors argued that the policy was arbitrary and violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution.

Background of dispute

• The judgment traced the evolution of LPG distribution policies in India to explain the dispute.
• Earlier, there was no ceiling on the number of LPG refills or customers a distributor could serve.
• Distributors were encouraged by oil companies to expand their customer base when LPG supply increased.
• Many dealers consequently invested heavily in infrastructure, manpower and delivery systems to service growing demand.

• In June 2016, the union ministry of petroleum and natural gas introduced the ‘Unified Guidelines for Selection of LPG Distributors’ (UGS), which fixed refill ceiling limits based on population and market size.
• Subsequently, the oil companies issued customer transfer guidelines in 2018 to redistribute customers from older distributors to newer ones to ensure viability and balanced service delivery.
• The new 2025 policy replaced those earlier guidelines and sought to apply refill ceiling limits uniformly to all distributors while restructuring markets.

Distributors’ arguments

• The petitioners raised several objections to the policy.
• They contended that the policy was not approved by the boards of the oil companies and was merely signed by their chief general managers.
• The policy violated the legitimate expectation of distributors who had built large customer bases over decades.

• The companies were attempting to enforce refill ceiling limits retroactively even though distributors had been allowed to expand beyond those limits for years.
• The policy effectively penalised efficient distributors who had invested heavily in infrastructure to serve customers.
• The distributors also argued that transferring customers would severely affect their financial viability because their operational infrastructure had been designed for larger consumer bases.

Oil companies defend policy

• The oil marketing companies opposed the petitions, arguing that LPG consumers are customers of the companies themselves and not of the distributors.
• They relied on earlier judgments of the Kerala High Court which had recognised the companies’ authority to restructure distribution networks in the public interest.

• The companies also pointed out that distributorship agreements expressly provide that dealers may be required to take over customers from other distributors or surrender some of their own customers when necessary.
• According to the companies, the restructuring policy was introduced to ensure efficient delivery of LPG cylinders and to avoid excessive concentration of customers with a few distributors.